Is INBIOGENLtd (KRX:101140) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies INBIOGEN CO.,Ltd (KRX:101140) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for INBIOGENLtd

What Is INBIOGENLtd's Debt?

The image below, which you can click on for greater detail, shows that INBIOGENLtd had debt of ₩4.24b at the end of December 2020, a reduction from ₩9.52b over a year. But on the other hand it also has ₩79.0b in cash, leading to a ₩74.8b net cash position.

How Healthy Is INBIOGENLtd's Balance Sheet?

According to the last reported balance sheet, INBIOGENLtd had liabilities of ₩18.1b due within 12 months, and liabilities of ₩842.0m due beyond 12 months. Offsetting these obligations, it had cash of ₩79.0b as well as receivables valued at ₩130 due within 12 months. So it actually has ₩60.1b more liquid assets than total liabilities.

This surplus liquidity suggests that INBIOGENLtd's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that INBIOGENLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is INBIOGENLtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, INBIOGENLtd reported revenue of ₩10b, which is a gain of 4.2%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is INBIOGENLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that INBIOGENLtd had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of ₩9.0b and booked a ₩45b accounting loss. With only ₩74.8b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with INBIOGENLtd (including 1 which shouldn't be ignored) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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